2020 Tax Season: How COVID May Affect Your Taxes
2020 was a year like no other, so it should be no surprise that your 2020 taxes may be the same. For many, this year’s tax filing may include unemployment insurance claims, stimulus check income, and more, all of which may complicate this year’s filing process compared to previous years. Fortunately, the IRS has delayed accepting tax returns until February 12, giving you more time to get organized before filing your taxes. Here are a few things to consider as you get organized.
If you qualify but do not receive your second-round stimulus payment by the end of the month, you’ll likely need to claim your payment as a Recovery Rebate Credit on your taxes this year. This also applies to the first round of stimulus checks, sent to most individuals last spring. According to the IRS, to claim the Recovery Rebate Credit, you need to file even if you are normally not required to file a tax return. Also, as a reminder, the stimulus payment doesn’t count as income so you won’t owe taxes on it.
Home Office Deductions
If you’re one of the millions of Americans that worked from home last year, you may wondering if you’re able to take the home office tax deduction on your 2020 federal tax return. The short answer is, if you receive a paycheck or W-2 from an employer, you do not qualify. To learn more about who does qualify, click here.
While many jobless workers know they could owe federal and state taxes on their 2020 unemployment income, the news may come as a bit of a shock to independent contractors and self-employed individuals who normally aren’t eligible for benefits but received Pandemic Unemployment Assistance through the CARES Act. If you received unemployment income last year, you’ll likely receive a Form 1099-G that spells out the amount of money you were paid during the year within the next few weeks. Federal income taxes apply to these benefits, whether it’s state unemployment insurance or the pandemic unemployment compensation paid under the CARES Act. Families that received unemployment income during 2020 should also be on the lookout for two key credits as they file their taxes: the earned income tax credit and the child tax credit.